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5G: enabling innovation in robotics and automation

In this edition we look at how 5G telecom technologies will be a critical element in enabling a broad range of novel applications and innovations in the field of robotics and automation.

October 2, 2020

Angus Muirhead

CFA, Portfolio Manager, Credit Suisse Asset Management

With 5G and other technology building blocks in place, the stage is now set for a golden age of innovation in the robotics and automation market. Considering the very large market potential in many sectors of the economy and the low levels of penetration of many automation solutions, we believe the long-term outlook for the Robotics and Automation theme remains compelling.

What is 5G?

5G is the “5th Generation” of cellular technology standards defined primarily by 3GPP, the body that agrees global cellular communication standards. 5G is not one thing, but a number of improvements in the hardware and software of the whole infrastructure involved, from antennas, through telecom towers, base stations, mobile phones, and all other wirelessly connected devices.

In combination, these improvements will deliver much faster data speeds, lower latency, close to zero failure rate, and the ability to connect a far greater number of users and connected devices simultaneously, compared to the current 4G technologies.

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Figure 1. The improvements offered by 5G

Sources: Credit Suisse, Thales (Gemalto), “Introducing 5G technology and networks (definition, use cases and rollout)”, 2019.

At the end of the 1970s, the first generation of mobile telecoms technology, which in retrospect we call 1G, enabled voice communications based on analog technologies. Then in the 1990s, 2G gave us text messaging (SMS) and sparked a boom in pagers or beepers. 3G launched in 2001, and gave us email and photos, triggering the race to build ever better cameras into mobile phones. 4G, which arrived in 2009, took this a step further, giving us streaming video, social media, and services such as ride sharing.

Fit for purpose

Consumers may view 5G simply as the next phase in this steady progression, but there is a significant difference, which will make the step to 5G a much more material change for many applications in business and government.
The difference stems from the fact that 5G can operate on a much broader range of radio frequencies than current 4G technologies. While 4G operates in a narrow band of spectrum below 2.5 GHz, 5G, in contrast, operates in a significantly larger range from sub-1 GHz to up to 95 GHz.

This gives telecom operators a far greater potential spectrum capacity and since low frequency signals offer different characteristics to high frequency, it allows the operator to segregate bands of frequency for different use cases.

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Figure: 2. Fit for purpose: recommended use-cases

Sources: Credit Suisse, ITU-Telecom, “Minimum requirements related to technical performance for IMT-2020 radio interface(s)”, November 2017. Credit Suisse Asset Management.

Waves

Since the broad range of frequencies is suited to different use cases, McKinsey2 believes that telecom operators will choose to roll out 5G in waves, with the first wave designed for data-hungry consumer glued to their mobile phones, and the second and third waves geared more to business and government and connected devices known as the “internet of things”. McKinsey notes (Figure 3.) that while the consumer market (enhanced mobile broadband, or eMBB) is likely the most easily accessible and uniform, being viewed as a simple upgrade for the mobile subscriber, the third wave (massive machine-type communication, or mMTC), suited to business and government applications will likely take longer to develop, but will ultimately become a much larger market.

For consumers, the improvements in speed and connectivity offered by 5G will likely be happily received and, for a while at least, some may be willing to pay a premium for the service. Data volumes and “screen time” will likely rise. Ericsson predicts that by 2025 smartphones around the world will consume 164 Exabytes of mobile data per month, a five-fold increase on 2019.3 The trend will likely be similar across global markets and drive improvements in our smartphones, such as greater memory capacity and higher resolution cameras, as well as increasingly data-rich content, and better, more affordable data plans. But despite the expected increase in usage and data traffic, 5G seems unlikely, at least in the first few years of adoption, to radically change how the consumer uses the mobile internet.

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Figure 3. Forecast for the number of devices connected to 5G networks

Source: McKinsey: “The 5G era: New horizons for advanced electronics and industrial computers”. 21 Feb 2020, Report.

The industrial wave

In contrast, the improvements of low latency, reliability, and speed offered by the mid and high frequency bands are likely to be critical in enabling a number of new services and applications for business and government. Let us look as some examples:

Autonomous vehicles and many advanced driver assistance systems (“ADAS”) need to “understand” a vast and highly varied environment and correctly respond to every scenario in every condition, no matter the time of day or the weather conditions. For a computer to learn that number of possibilities is a huge challenge and rather than placing a super computer in every vehicle, it makes sense for vehicles to share and connect to a common repository of data stored in the cloud. Clearly though, this data needs to be accessed quickly and reliably every time, since even a split second delay may be the difference between life and death. 5G has the potential to enable this.

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Image 1. An illustration of the Advanced Driver Assistance System from Veoneer Inc.

Picture used with kind permission from Veoneer Inc.

5G standards require an outage, or failure, rate of just 0.00001 (or, 10-5). This is approximately five thousand times better reliability than 4G. In addition, latency rates are required to be less than 1 millisecond, with zero interruption if the device or user moves from one cell to another.4

"We need to look at how long it takes for the message to be transmitted between sensors and then to get to the computer in each car and then how long it takes for the computer to make a decision, and all of this has to be in less time than a human would take to make a decision. We need a network supporting this and 5G is that network." Jane Rygaard, Nokia - Head of Dedicated Wireless Networks (5)

The average reaction time for humans to visual stimulus is 250 milliseconds (¼ of a second) and approximately 190 ms for professionally trained drivers.6 A car travelling at 100 kmph would therefore travel approximately 30 meters before the average human reacts and applies the brake. If an autonomous vehicle could react in 10 ms, then the vehicle would only travel 30 cm before the brake is applied, a significant improvement, and as processing times improve, reaction speeds of 1-2 ms may become possible.4 The speed and reliability of 5G are critical to enable this.

5G can also connect far more devices than 4G. Estimates suggest that 1 million devices per square kilometer should be possible and therefore it becomes far more practical to connect all infrastructure on the road, such as traffic lights, speed and warning signs, as well as pedestrians and bicycles. This real-time information will allow traffic flow to be better managed, congestion reduced, safety improved, and even to assist in finding parking spaces.

Healthcare. Just as 5G will save lives with improved road safety, it will also help transform the healthcare industry. As more and more personal healthcare data is generated for patients, 5G will enable this data to be shared seamlessly in real time. Even huge data files, such as MRI images, can be shared quickly and reliably with other physicians and experts. 5G will also allow enable greater use of telemedicine by making available enough spectrum to support significant growth in demand for high-quality video conferencing between physician and patient.

In addition, the rising popularity of wearable sensors for continuous health tracking and diagnostics both in the hospital and at home will demand more bandwidth than is currently available on 4G. According to Anthem, a US health insurer, 86% of physicians say that wearable devices for remote monitoring increases patient engagement with their own health and wearables are expected to lower hospital costs by 16% over the next five years.7

Industry. In a modern factory, machines, sensors, robotics, and other forms of automation equipment are connected to a network and can share data and respond to one another in real-time, without human involvement.
However, these machines are generally fixed in place and plugged into the mains electricity and into the factory network. The high reliability and low latency offered by 5G makes it plausible to cut the cord and untether the machines (assuming they can be powered sufficiently with batteries, or receive a charge at various docking terminals), making them free to move around the factory floor.

Potentially this makes the machines more useful and makes the factory floor space more flexible and makes it possible to adjust production lines more quickly. These advantages may enable faster throughput and shorter lead-times.

"I think 5G will be the digital backbone that transforms the way we do smart manufacturing. [With] 5x lower latency and about 1,000x more data volume, industries can dare to cut their cables and move more into fully flexible production." Erik Joseffon, VP and head of advanced industries at Ericsson (8)
Logistics. Beyond the factory, there are great opportunities to improve efficiency and flexibility in supply chains and logistics by adding more layers in intelligence and sensors through the process. The ability of 5G to connect millions of devices simultaneously opens up the possibility to track every single item individually over the mobile network.
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Figure 4. Forecast for the number of devices connected to 5G networks

Sources: Credit Suisse, 5G-Alliance for Connected Industries and Automation (a working party of ZVEI), microsite: “Making Industry 4.0 happen – How it can be used?” 2020.

Conclusion

Our conviction in the robotics and automation theme as a long-term investment opportunity is based on the fact that we see a rising tide of innovation, an increasingly varied range of use-cases and applications, and a large number of new ventures entering the market.
We believe this is happening because the building blocks for technology innovation, including building robotics and automation solutions, are more accessible and affordable today than ever before and there is a growing population of people who know how to put these pieces together. In this Insight we have seen how 5G is a critical enabler for several significant areas for automation. There are of course yet more, such as agriculture, security, climate change, and defense, which we have not discussed here.
We believe that with 5G and other building blocks in place, the stage is now set for a golden age of innovation in the robotics and automation market. Considering the very large market potential in many sectors of the economy and the continuous search for productivity growth, the challenges of labor shortages and increasing regulation, we think it likely that a large part of R&D and innovation will focus on the robotics and automation opportunity.
There will be challenges along the way, such as cyber security risks, battery life limitations, social and political concerns about the impact of automation on the workforce, and environmental concerns around the carbon footprint of operating millions of connected devices. However, in most areas, we believe the benefits significantly outweigh the challenges and we are convinced of the power of this theme as an investment opportunity for the long-term.
Credit Suisse Asset Management has designed strategies to provide clients with “pure-play” exposure to a number of compelling and complementary long-term secular growth themes including Robotics & Automation, Security & Safety, Digital Health, Edutainment, and Environmental Impact.

Risks

  • No capital protection: investors may lose part or all of their investment in this theme.
  • The emphasis on robotics companies can create significant exposure to certain sectors or regions.
  • Exposure to small and mid caps can result in higher short-term volatility and may carry liquidity risk.
  • Due to the possibility of increased exposure to the emerging markets, the strategy may be affected by political and economic risks in these countries.
  • Equity markets can be volatile, especially in the short term.

1. 3GPP (3GPP.org), “Release 16 – The 5G System”, last update: July 2020.
2. Source: McKinsey: “The 5G era: New horizons for advanced electronics and industrial computers”. Feb. 21, 2020, Report.
3. Source: Ericsson: “Ericsson Mobility Report – Mobile traffic outlook”, June 2020.
4. Source: ITU-Telecom, “Minimum requirements related to technical performance for IMT-2020,” November 2017.
5. BBC News report: “Will 5G be necessary for self-driving cars,” by Mary-Ann Russon, September 26, 2018.
6. Thales (Gemalto), “Introducing 5G technology and networks (definition, use cases and rollout),” 2019.
7. Forbes magazine, “The 5G and IoT revolution is coming,” by Randal Kenworthy, November 18, 2019.
8. SME article (sme.org), “Ericsson, Hexagon cook up an example of 5G in action”, 17 July 2020.



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